A Good Deal from Chipotle Weekly Options

CMG is flush with weekly options

I enjoy reading the advice of other advisers — sometimes for a good idea (though more often for laughs), and occasionally a good chuckle leads to some accidental good advice for those looking for income.

The financial genius in question who inspired this column was questioning the fundamentals of Chipotle Mexican Grill (NYSE:CMG). You can question the ascent of the stock, the valuation, all the things related to charts and technicals — but the fundamentals?

CMG serves freshly prepared, pretty much made-to-order Mexican fare, mostly burritos — or for those of too used to wearing relaxed-fit jeans, burrito bowls, which are the ingredients without the wrapping. The restaurants are famously busy at lunchtime, and in many places quite busy for dinner as the company has been growing in double digits using internally generated cash.

And, unlike what some of you may have read, it is nowhere near market saturation — in fact, one of the appeals of the stock is the company has so much room to expand in the good ol’ US of A before nearing any kind of market saturation. The company operates 1,230 stores/restaurants, with average trailing 12-month revenue per store now above $2 million. That probably is what McDonald’s (NYSE:MCD) has in one or two states. And, since I am the father of twin boys in college, as long as there are more than 5,000 colleges and universities in the U.S., there is room for at least 5,000 Chipotles around the country.

If lack of market saturation is one appeal of this stock, the other is the availability of weekly options on CMG. The stock trades around $415-$420 and premiums for puts are high.

You can get almost $2 for a May, Week 1 $415 put, and more than $1 for a May, Week 1 $410 put. At that $2 price, a put that generates that amount of cash and expires worthless generates a half-percent in a week — or 25% or more per year.

You can buy a lot of burritos — or burrito bowls — with that kind of income.